Tuesday, August 20, 2013

Stock market update

On
Friday the S&P 500 was down for the day as a result of a jump in the
10-year Treasury yield index. In doing
so the SPX closed under the widely watched 50-day moving average for the first
time since July. The Dow was
substantially below its 50-day MA and has even managed to violate the dominant
interim 90-day MA on a 2-day closing basis.

The
unhealthy number of new lows has resulted in a downward trend in the hi-lo
momentum index (HILMO). The HILMO
indicators, which are based on the new highs-new lows, show us the stock
market’s path of least resistance on a short-term, intermediate-term and
longer-term basis.

It
goes without saying that HILMO needs to reverse before we get the next buy
signal, but before this happens the number of stocks making new 52-week lows
must diminish. In 19 of the last 20 days
there have been greater than 40 new 52-week lows on the NYSE. Keep in mind that anything above 40 is
considered to be a sign of internal selling pressure; the higher the number of
new lows, the more the selling pressure….

It
was equally surprising that Thursday’s AAII investor sentiment poll showed a
net bullish reading. That is, more
investors polled by AAII were bullish on the market outlook than were
bearish. Again, this isn’t consistent
with a market bottom. Historically the
AAII poll registers a net bearish reading at market bottoms. This suggests the market decline may have
further to run before it reverses course. [Excerpted
from the Aug. 16 issue of Momentum Strategies Report.]